AMR Corp. Files Chapter 11

American Airlines’ parent company AMR Corporation filed for Chapter 11 bankruptcy protection last Monday. The company currently faces $29.6 billion in debt that continues to grow as a result of operating losses. During reorganization, the airline company will likely aim to reduce labor costs, leaving many worried that wage-cuts and layoffs may come in the near future. AMR stated that American Airlines expects to continue normal business operations throughout the reconstruction process. Specifically, American and American Eagle assured customers that they would fly normal schedules, honor tickets and reservations, maintain frequent flyer miles, and continue to pay employee wages as well as provide health benefits.

According to the Financial Times, this marks the end of company’s decade-long attempt to avoid Chapter 11. In 2003, American chose to avoid bankruptcy, while many of its peers chose to use Chapter 11 to reduce structural costs and cut pension plans, putting American at comparative disadvantage. For example, the company claims that it is currently paying at least $600 million more for labor contracts than other airlines such as Delta and United who were able to eliminate existing contracts after filing chapter 11. Federal bankruptcy rules allows a company filing for Chapter 11 the ability to reject contracts. As such, AMR will be able to take a stronger stance when it renegotiates with labor unions. This will be one of the first steps AMR will take in its attempt to use reorganization to become more efficient, competitive, and financially secure.
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Editorial Staff

Interview with David Cutcliffe

Duke Football Coach David Cutcliffe discusses the financial aspects of the team and team management.

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Editorial Staff

Corporate Finance Activity Review

Starbucks Acquires Juice Company 
Starbucks bought Evolution Fresh, a juice company, for $30 million. The recent purchase represents a shift for the company in seeking juice profits. Starbucks main competitors in the juice industry will be Odwalla, owned by Coca-Cola, and Naked Juice, owned by PepsiCo. In purchasing Evolution Fresh, Starbucks is looking to expand its menu and entice a different sort of customers.

Energy BP Fails to Sell Argentinian Oil Company Stake
Energy BP plans to sell its majority stake in Pan American Energy, an Argentinean oil producer, for an estimated $7.1 billion. However, the potential deal ended after the buyer, Bridas Corporation backed out.

TransCanada Pipeline 
The approval process for the Keystone XL pipeline has been delayed; the pipeline would cross the international border with Canada and new possible alternate routes are being discussed. Initial estimates on the cost of the project have reached $1.9 billio. 
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Editorial Staff 

Market Recap (Nov. 14)

After opening the week strong, the Dow Jones Industrial Average (DJIA) sustained severe losses at the opening bell on Wednesday, finishing the day down 3.2%. This overnight drop was caused predominantly by the news that Italy’s borrowing costs would continue to rise. Investors acted on concerns about the credit status of Italy and instability in the Eurozone in general. The market bounced back on Friday as plans for an interim government after the imminent resignation of Prime Minister Silvio Berlusconi began to emerge. As expected, Berlusconi resigned on Saturday as the lower chamber of Italy’s parliament approved new austerity measures in a revised budget bill. Mario Monti, an economist and former European commissioner, was announced as Berlusconi’s successor effective Sunday night. Investors will likely react favorably to this decision by parliament given the extremely negative perception that the international community at large held with respect to Berlusconi’s leadership.

Europe’s debt crisis remains one of the most significant roadblocks to sustainable increases in the markets. On the whole, the economy is slowly recovering as is reflected in generally fair valuations and better-than-expected quarterly earnings reports. Eurostat will release reports on industrial production and inflation within the Eurozone on November 14 and November 16 respectively. These reports will provide important insight into the overall economic health of the countries that investors have been so focused on. Investors are also worried about the increasing spreads in yield premiums between Germany and other large Eurozone countries such as France, Austria, and Belgium. If these spreads do not tighten over the next week, the market will likely fall off the gains it made late this past week.

Earnings reports from Walt Disney Corp. (DIS +0.95%) were released this week. Disney announced a rise in fourth-quarter earnings Thursday afternoon, giving investors a pleasant surprise. Bond markets were closed for Veteran’s Day on Friday but positive developments over the weekend in Europe (specifically in Italy) should promulgate a bond selloff on Monday that could push equities even higher. Of course, this increase will likely not be sustainable unless regulators can come up with a viable plan to keep Italy’s and other struggling countries’ borrowing costs low.
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Editorial Staff

MF Global Winds Up

The liquidation of MF Global resulted in 1,066 layoffs this past week. After MF Global filled for bankruptcy on October 31st of this year, the court appointed trustee has been overseeing the brokerage firm. FBI investigators are investigating the company and searching for $600 million missing in customer money. The CME group pledged $300 million to aid MF Global’s current customers. However, the recent lay-offs will not make up for the missing money.
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Editorial Staff